EX-99.1 2 a4703859ex99.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 Network Appliance Announces Results for First Quarter Fiscal Year 2005; Q1 Revenue Up 38% Year over Year; Eleventh Consecutive Quarter of Growth SUNNYVALE, Calif.--(BUSINESS WIRE)--Aug. 17, 2004--Network Appliance, Inc. (Nasdaq:NTAP), the leader in advanced networked storage solutions, today reported results for the first quarter of fiscal year 2005. Revenues for the first fiscal quarter were $358.4 million, an increase of 38% compared to revenues of $260.5 million for the same period a year ago and a 6% increase compared to $337.0 million in the prior quarter. For the first fiscal quarter, GAAP net income increased 73% to $46.9 million, or $0.13 per share(1) compared to GAAP net income of $27.1 million, or $0.08 per share for the same period in the prior year. Pro forma(2) net income for the first fiscal quarter increased 73% to $49.9 million, or $0.13 per share, compared to pro forma net income of $28.7 million, or $0.08 per share for the same period a year ago. "NetApp demonstrated exceptional execution, a strong balance sheet, and continued cash generation during the quarter. We continue to drive our solutions deeper into our customers' data centers and mission-critical areas to solve significant issues around business continuity, regulatory compliance, and high data availability," said Dan Warmenhoven, CEO of Network Appliance. "Our focus is on expanding our market share and our results demonstrate that the market is continuing to move toward us." Quarterly Highlights Throughout the first quarter of fiscal year 2005, Network Appliance reinforced its leadership position by deploying new tier-one storage solutions, expanding partnerships, and enhancing its storage grid architecture. Customers deploying NetApp during the quarter for a variety of database, collaborative, and other data center and mission-critical applications included Audi AG, Canon, Catholic Healthcare West, China Everbright Bank, Ciena, City of Concord, ConocoPhillips, Fujitsu LTD, Gap Inc., GE Healthcare, Hearst Corporation, ING BHF Bank, Pixar, Progress Energy, Qualcomm, Sprint, Telstra, and University of Georgia. All levels of enterprise customers have chosen to deploy NetApp for a variety of reasons -- reduced complexity, a low total cost of ownership (TCO), and advanced management capabilities made possible through Data ONTAP(TM) and a range of additional storage software packages that unleash the value of enterprise data. On the partners front, NetApp unveiled several new solution enhancements and partner offerings with McData, Ontrack Data Recovery, Oracle, Secure Computing, Symantec, Trend Micro, and VERITAS to address a variety of data concerns, including e-mail recovery, unified storage, and security issues facing enterprise customers. For storage grid architectures, the company continued to set the pace for the rest of the industry in iSCSI and IP SAN (storage area network), with more than 700 real-world production deployments to date, and reinforced its leadership in other storage application areas such as data protection/recovery, disk-based nearline storage, and database storage. In database storage in particular, NetApp demonstrated its prowess with large Oracle(R) deployments at Universal Tax Systems and the South China Morning Post and received a prestigious SAP Pinnacle Award for innovation around storage for SAP environments. Finally, Network Appliance also debuted its new midrange unified storage models, the FAS920 and FAS920c. Designed to provide affordable enterprise-class performance, reliability and advanced data management features for midrange applications, the FAS920 can power applications in Fibre Channel and iSCSI SANs and network-attached storage (NAS) simultaneously. In corporate news, Network Appliance recently announced that it is the recipient of a Job Development Investment Grant (JDIG) from the governor of North Carolina to assist in any expansion of newly acquired NetApp offices in Research Triangle Park, North Carolina. NetApp also added two new members to its board of directors: Mark Leslie and George Shaheen. Conference Call Information -- The NetApp quarterly results conference call will be broadcast live via the Internet at http://investors.netapp.com/ on Tuesday, August 17, 2004 at 2:00 p.m. Pacific time. This press release and any other information related to the call will also be posted to the Web site at that location. The conference call will also be available live in a listen-only format at (866) 800-8649 in the United States and (617) 614-2703 outside the United States. The passcode for both numbers is 19115940. -- A replay will be available for 72 hours following completion of the live call by dialing (888) 286-8010 in the United States and (617) 801-6888 outside the United States, replay code 62837719. About Network Appliance Network Appliance is a world leader in unified storage solutions for today's data-intensive enterprise. Since its inception in 1992, Network Appliance has delivered technology, product, and partner firsts that continue to drive "The evolution of storage.(TM)" Information about Network Appliance(TM) solutions and services is available at www.netapp.com. "Safe Harbor" Statement under U.S. Private Securities Litigation Reform Act of 1995 This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include market and marketshare trends which benefit the Company, and continued customer acceptance of the Company's products. These forward-looking statements involve risks and uncertainties, and actual results could vary. Factors that could impact our ability to achieve our goals include: general economic and industry conditions, including expenditure trends for storage- related products; our ability to deliver new product architectures and products which meet market acceptance; our ability to design products which compete effectively from a price and performance perspective; and other important factors as described in Network Appliance, Inc.'s reports and documents filed from time to time with the Securities and Exchange Commission, including our most recently submitted 10-K and 10-Q. (1) Earnings per share represents the diluted number of shares for all periods presented. (2) Pro forma results for all periods presented exclude amortization of intangible assets, stock compensation, net gain on investments, and the related effects on income taxes. NetApp is a registered trademark and Network Appliance, Data ONTAP, and The evolution of storage are trademarks of Network Appliance, Inc. in the U.S. and other countries. All other brands or products are trademarks or registered trademarks of their respective holders and should be treated as such. Network Appliance Usage of Pro Forma Financials The Company refers to the non-GAAP financial measures cited above in making operating decisions because they provide meaningful supplemental information regarding the Company's operational performance. In addition, these non-GAAP financial measures facilitate management's internal comparisons to the Company's historical operating results and comparisons to competitors' operating results. We include these non-GAAP financial measures in our earnings announcement because we believe they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision-making such as employee compensation planning. In addition, we have historically reported similar non-GAAP financial measures to our investors and believe that the inclusion of comparative numbers provides consistency in our financial reporting at this time. NETWORK APPLIANCE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) July 30, April 30, 2004 2004 ----------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $228,045 $241,149 Short-term investments 598,596 566,816 Accounts receivable, net 199,746 193,942 Inventories 34,710 34,109 Prepaid expenses and other 39,290 29,057 Deferred income taxes 24,719 24,163 ----------- ------------ Total current assets 1,125,106 1,089,236 PROPERTY AND EQUIPMENT, net 392,588 370,717 GOODWILL 291,816 291,816 INTANGIBLE ASSETS, net 28,935 31,718 OTHER ASSETS 82,642 93,779 ----------- ------------ 1,921,087 1,877,266 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 51,691 $ 52,719 Income taxes payable 15,172 16,033 Accrued compensation and related benefits 50,866 65,186 Other accrued liabilities 46,775 43,683 Deferred revenue 182,801 166,602 ----------- ------------ Total current liabilities 347,305 344,223 LONG-TERM DEFERRED REVENUE 126,355 112,337 LONG-TERM OBLIGATIONS 4,787 4,858 ----------- ------------ 478,447 461,418 ----------- ------------ STOCKHOLDERS' EQUITY 1,442,640 1,415,848 ----------- ------------ 1,921,087 1,877,266 =========== ============ NETWORK APPLIANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Quarter Ended ------------------- July 30, August 1, 2004 2003 --------- --------- REVENUES: Product revenue $324,627 $235,786 Service revenue 33,794 24,723 --------- --------- Total revenues 358,421 260,509 --------- --------- COST OF REVENUES: Cost of product revenue 114,215 85,039 Cost of service revenue 29,248 19,347 --------- --------- Total cost of revenues 143,463 104,386 --------- --------- GROSS MARGIN 214,958 156,123 --------- --------- OPERATING EXPENSES: Sales and marketing 103,311 79,356 Research and development 38,703 31,541 General and administrative 16,882 12,265 Stock compensation 2,104 654 --------- --------- Total operating expenses 161,000 123,816 --------- --------- INCOME FROM OPERATIONS 53,958 32,307 OTHER INCOME (EXPENSES), net: Interest income 4,082 3,045 Other expenses, net (912) (47) Net gain on investments -- 145 --------- --------- Total other income, net 3,170 3,143 --------- --------- INCOME BEFORE INCOME TAXES 57,128 35,450 PROVISION FOR INCOME TAXES 10,266 8,377 --------- --------- NET INCOME $ 46,862 $ 27,073 ========= ========= NET INCOME PER SHARE: BASIC $ 0.13 $ 0.08 ========= ========= DILUTED $ 0.13 $ 0.08 ========= ========= SHARES USED IN PER SHARE CALCULATION: BASIC 356,743 341,687 ========= ========= DILUTED 372,974 358,497 ========= ========= NETWORK APPLIANCE, INC. PRO FORMA (1) CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Quarter Ended ------------------- July 30, August 1, 2004 2003 --------- --------- REVENUES: Product revenue $324,627 $235,786 Service revenue 33,794 24,723 --------- --------- Total revenues 358,421 260,509 --------- --------- COST OF REVENUES: Cost of product revenue 113,357 83,675 Cost of service revenue 29,248 19,347 --------- --------- Total cost of revenues 142,605 103,022 --------- --------- GROSS MARGIN 215,816 157,487 --------- --------- OPERATING EXPENSES: Sales and marketing 103,104 79,356 Research and development 38,703 31,541 General and administrative 15,614 12,265 --------- --------- Total operating expenses 157,421 123,162 --------- --------- INCOME FROM OPERATIONS 58,395 34,325 OTHER INCOME (EXPENSES), net 3,170 2,998 --------- --------- INCOME BEFORE INCOME TAXES 61,565 37,323 PROVISION FOR INCOME TAXES 11,697 8,584 --------- --------- NET INCOME $ 49,868 $ 28,739 ========= ========= NET INCOME PER SHARE: BASIC $ 0.14 $ 0.08 ========= ========= DILUTED $ 0.13 $ 0.08 ========= ========= SHARES USED IN PER SHARE CALCULATION: BASIC 356,743 341,687 ========= ========= DILUTED 372,974 358,497 ========= ========= (1) Pro forma results of operations exclude amortization of intangible assets, stock compensation, net gain on investments and the related effects on income taxes. NETWORK APPLIANCE, INC. RECONCILIATION OF NON-GAAP AND GAAP IN THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Quarter Ended ------------------- July 30, August 1, 2004 2003 --------- --------- SUMMARY RECONCILIATION OF NET INCOME ------------------------------------ NET INCOME $46,862 $27,073 Adjustments: Amortization of intangible assets 2,333 1,364 Stock compensation 2,104 654 Net gain on investments -- (145) Income tax effect (1,431) (207) --------- --------- PRO FORMA NET INCOME $49,868 $28,739 ========= ========= DILUTED PRO FORMA NET INCOME PER SHARE $0.13 $0.08 ========= ========= SHARES USED IN DILUTED PRO FORMA NET INCOME PER SHARE CALCULATION: 372,974 358,497 ========= ========= DETAILED RECONCILIATION OF SPECIFIC ITEMS: ------------------------------------------ COST OF REVENUES $143,463 $104,386 Adjustment: Amortization of intangible assets (858) (1,364) --------- --------- PRO FORMA COST OF REVENUES $142,605 $103,022 ========= ========= GROSS MARGIN $214,958 $156,123 Adjustment: Amortization of intangible assets 858 1,364 --------- --------- PRO FORMA GROSS MARGIN $215,816 $157,487 ========= ========= SALES AND MARKETING EXPENSES $103,311 $79,356 Adjustments: Amortization of intangible assets (207) -- --------- --------- PRO FORMA SALES AND MARKETING EXPENSES $103,104 $79,356 ========= ========= GENERAL AND ADMINISTRATIVE EXPENSES $16,882 $12,265 Adjustments: Amortization of intangible assets (1,268) -- --------- --------- PRO FORMA GENERAL AND ADMINISTRATIVE EXPENSES $15,614 $12,265 ========= ========= OPERATING EXPENSES $161,000 $123,816 Adjustments: Stock compensation (2,104) (654) Amortization of intangible assets (1,475) -- --------- --------- PRO FORMA OPERATING EXPENSES $157,421 $123,162 ========= ========= NETWORK APPLIANCE, INC. RECONCILIATION OF NON-GAAP AND GAAP IN THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) INCOME FROM OPERATIONS $53,958 $32,307 Adjustments: Amortization of intangible assets 2,333 1,364 Stock compensation 2,104 654 --------- --------- PRO FORMA INCOME FROM OPERATIONS $58,395 $34,325 ========= ========= TOTAL OTHER INCOME (EXPENSES), NET $3,170 $3,143 Adjustments: Net gain on investments -- (145) --------- --------- PRO FORMA TOTAL OTHER INCOME (EXPENSES), NET $3,170 $2,998 ========= ========= INCOME BEFORE INCOME TAXES $57,128 $35,450 Adjustments: Amortization of intangible assets 2,333 1,364 Stock compensation 2,104 654 Net gain on investments -- (145) --------- --------- PRO FORMA INCOME BEFORE INCOME TAXES $61,565 $37,323 ========= ========= PROVISION FOR INCOME TAXES $10,266 $8,377 Adjustments: Income tax effect 1,431 207 --------- --------- PRO FORMA PROVISION FOR INCOME TAXES $11,697 $8,584 ========= ========= NETWORK APPLIANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands - unaudited) Three Months Ended -------------------- July 30, August 1, 2004 2003 ---------- --------- Cash Flows from Operating Activities: Net income $46,862 $27,073 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 13,239 13,426 Amortization of patents 451 150 Amortization of intangible assets 2,333 1,364 Stock compensation 2,104 654 Net (gain) loss on investments (29) (145) Allowance for doubtful accounts (reversal) (154) (290) Deferred rent 90 271 Changes in assets and liabilities: Accounts receivable (5,650) 9,638 Inventories (3,330) (5,796) Prepaid expenses and other assets (1,261) (2,306) Accounts payable (1,029) 2,202 Income taxes payable 4,831 2,602 Accrued compensation and related benefits (14,319) (5,271) Other accrued liabilities 3,669 (1,708) Deferred revenue 30,216 14,912 ---------- --------- Net cash provided by operating activities 78,023 56,776 ---------- --------- Cash Flows from Investing Activities: Purchases of short and long-term investments (69,245) (89,136) Redemptions of short and long-term investments 35,645 92,581 Purchases of property and equipment (33,285) (12,318) Proceeds from disposal of property and equipment -- 105 Proceeds from sales of investments 298 419 Purchase of patents -- (9,015) Purchases of equity securities -- (325) ---------- --------- Net cash used in investing activities (66,587) (17,689) ---------- --------- Cash Flows from Financing Activities: Proceeds from sale of common stock related to employee stock transactions 23,202 24,256 Repurchases of common stock (47,742) (26,825) ---------- --------- Net cash used in financing activities (24,540) (2,569) ---------- --------- Net Increase (Decrease) in Cash and Cash Equivalents (13,104) 36,518 Cash and Cash Equivalents: Beginning of period 241,149 284,161 -------------------- End of period $228,045 $320,679 ==================== Noncash Investing and Financing Activities: Deferred stock compensation, net of reversals $(546) $1,668 Conversion of evaluation inventory to fixed assets 2,729 661 Income tax benefit from employee stock transactions 5,692 9,874 Supplemental cash flow information: Income taxes paid 6,826 1,456 CONTACT: Network Appliance, Inc. Jodi Baumann, 408-822-3974 (Press) jodi@netapp.com Tara Calhoun, 408-822-6909 (Investor) tara@netapp.com Billie Fagenstrom, 408-822-6428 (Investor) billief@netapp.com